The 5th Anti-Money Laundering Directive (AMLD5) is now in effect, and extends the EU’s anti-money laundering and counter-terrorism financial rules to include virtual currencies.
The amendment was published in the Official Journal of the European Union on 19 June 2018, and mandates member states to transpose this directive by 10 January 2020.
The European Commission explained that:
Directive (EU) 2018/843 (AMLD5), once transposed into member state legislation, will extend the list of obliged entities to virtual currency exchanges and custodian wallet providers.
Article 1, (2) (d) of the AMLD5 defines a virtual currency as:
a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency, and does not possess a legal status of currency or money, but is accepted by natural or legal persons, as a means of exchange, and which can be transferred, stored and traded electronically
The approach of the Directive is to regulate the use of virtual currencies, including virtual currency exchange platforms (VCEPs) and custodian wallet providers (CWPs), in the list of obliged entities regulated by AML rules.
These entities will become subject to regulatory requirements similar to those for banks, payment institutions and other financial institutions. The European Commission clarified that:
These new actors will have to identify their customers and report any suspicious activity to the Financial Intelligence Units.
The amendment also proposes that member states create central databases comprised of crypto users’ identities and wallet addresses and authorize national Financial Intelligence Units (FIUs) to access the information stored in them. This is to combat the risks related to the anonymity, as the Directive reinforces that "national [FIUs] should be able to obtain information allowing them to associate virtual currency addresses to the identity of the owner of virtual currency."
From 10 January 2020, we are the anti-money laundering and counter-terrorist financing (AML/CTF) supervisor of UK cryptoasset businesses.
The FCA detailed that crypto exchanges, ATMs, peer-to-peer platforms, custodian wallet providers and token issuers, including initial coin offerings (ICOs) and initial exchange offerings (IEOs), must comply with its rules, which came into force on 10 January.
The Austrian Financial Market Authority (FMA) announced that it is now the regulator of virtual currencies in Austria, and that effective 10 January companies that issue, sell, transfer, trade, and exchange cryptocurrencies were to register with the FMA.
France in anticipation of this Directive, proactively adopted a regulatory framework for crypto assets in April of last year. The French financial markets regulator, the Autorité des Marchés Financiers (AMF), published its new rules for digital asset service providers on 20 December.
Similarly, Finland and Netherlands began regulating their country’s crypto industry in May and September of 2019 respectively. Germany also had an active 2019 transposing the AMLD5 into its laws, allowing financial institutions to sell and store cryptocurrencies (with authorization from the Federal Financial Supervisory Authority) alongside traditional investments such as stocks (shares) and bonds.
The new Directive has been viewed as crippling by some crypto derivative trading platforms, as Dutch company Deribit, who announced that from 10 February their platform will not be operated by Deribit B.V, citing increased oversight and the burdensome costs of having to "demand an extensive amount of information from our current and future customers" as the main reasons.
Several other crypto service providers, such as U.K based custodial waller provider Bottle Pay and crypto mining pool Simplecoin, have also shut down in anticipation of the AMLD5 implementation in their countries.
However, the EU legislative framework is set to extent even further, from early January 2020 under Article 45 of the Directive the EU Commission will examine and likely draft legislative proposals regarding self-declaration by virtual currency owners and how Member States may maintain of central databases registering users’ identities and wallet addresses.